Not finding a financial advisor for retirement is one of the biggest oversights we see business owners make! And it happens all the time.
Studies show that only 40 percent of business owners have consulted with a financial advisor. Likely a result of this, 30 percent of business owners have no idea how much they need for retirement, and less than 25 percent have a formal plan for what to do with their business when it comes time for their own retirement.
Those are some scary statistics! Finding a financial advisor for retirement is one of the most important financial decisions you’ll make in your lifetime. This person will affect how you can retire, when you can retire, and quite frankly, if you’re able to retire at all. If you’re a business owner in Greenville SC, your retirement strategy can be even more complex, especially post-COVID-19.
If you own a small business, your succession or exit might be the most significant financial transaction in your lifetime. That’s why establishing a sound exit plan is so critical – your financial well-being, as well as that of the business and your family, could be at stake. Your exit plan should comprehensively address all the decisions and options confronting you as you look to change your relationship with your business.
Failing to find a financial advisor for retirement to help establish an exit plan can be a terrible mistake, jeopardizing your personal goals, the business’ value and, if applicable, its future.
A Financial Planning Checklist for Business Owners
There are many reasons why business owners put off their retirement planning. They may be overwhelmed with the day-to-day of running a business and the company’s own financial needs. Since many business owners wear a lot of hats, they may feel they can handle their finances as well, but don’t get around to it or forgot to consider their own retirement. Another common issue we see is business owners who simply love working and never plan to retire. While that may be a nice goal, life doesn’t always go as planned.
Even if you plan to “work ’til you die,” it’s prudent to establish an exit plan … just in case!
At Global View, we specialize in helping business owners plan for retirement, whether that’s leaving their company to family members or maximizing a sale to an outside person. In our experience, we have identified 10 important elements that your exit plan should include. Your plan may require additional elements, but these 10 will form the nucleus of a solid plan.
1. An Exit Date
An exit date depends on how your prior role in the company will change. Does the exit date refer to a clean break with the business or the beginning of a multi-step disentanglement? (Remember, there’s not just one way to retire.) Moreover, the date may be driven by personal and/or business considerations – how will one affect the other? Whatever the reasoning, a sound plan will have an exit date that gives you enough time to execute your strategy and successfully fulfill your goals.
In some cases, you won’t have a firm exit date because your exit depends on various contingencies. If that’s the case, the plan should spell out what those contingencies are and estimate when they will be resolved.
2. A Plan for How You’ll Leave
At one extreme, your plan may be to sell the business for the highest price you can obtain. Secondarily, you may have a preference for whom the buyer will be – family, employees, competitors, the public or anyone willing to spend the money.
On the other extreme, you may see your exit as a series of steps in which you gradually relinquish control of the company, either to current management, family members or a new owner. Your plan should lay out the steps and the criteria for evaluating when each step has been completed.
Under certain circumstances, you may want to leave the business to your family without extracting capital from it. Another possible outcome is simply to close down the business and walk away.
3. Updated Books
Whatever the eventual outcome of your exit, your books and records should be up-to-date so that buyers and/or new managers have a clear understanding of the challenges and opportunities facing them. It may be appropriate to run an outside audit of your business to uncover any surprises that may endanger your exit plans.
4. An Appropriate Valuation
If you want to sell your company, either to a private buyer, via a merger or through an initial public offering, you’ll need to establish the value of your business so that you’ll know the price to ask. You will likely also need this number for several tax-related reasons, especially if you plan to sell off the company’s assets rather than the business as a whole.
5. If Selling, a Plan for the Proceeds
Decide whether you will be taking the proceeds as a lump sum or as a long-term payout. What will you do with the money? Will it be used for a new business, to fund your retirement, as a gift to others, a charitable donation, as part of a trust, or something else? How will the money affect your personal life, especially if you plan an active retirement? Your exit plan should explicitly indicate how you’ll receive the proceeds – as cash, stock and/or other types of assets.
6. A Plan for Taxes
Depending on the size of the company and the expected sale proceeds, talk to a tax specialist, a lawyer and your financial advisor to help you determine (and minimize) your tax liability. (At Global View, we have all of these experts under one roof!) There are many clever ways to shelter the money you receive when you exit. Your plan should include how you will handle the tax liability in a way that is consistent with your personal needs.
7. A Plan for Your Own Retirement
Whether you plan to retire immediately or not, the sale proceeds may be a critical factor in achieving the type of retirement you desire. At Global View, our financial advisors can provide you with a complete analysis of your options and various ways to achieve your long-term goals for retirement. It’s important to avoid mistakes that can have a costly negative impact on your retirement. A large payday could overwhelm the contribution limits of your existing retirement accounts and therefore require additional solutions.
8. A Plan for Your Healthcare Needs in Retirement
Exiting your company could disrupt your health coverage, especially if the business was paying for your insurance and if the insurance policy was gold-plated. One mistake we see retirees often make is not considering their plan to seamlessly shift to a new insurance arrangement to cover their (and perhaps their spouse’s and family’s) medical needs and long-term care. Medicare will be an important component if you’ve reached 65, but if you’re not yet eligible, you will need to handle the interim period until Medicare kicks in. Under the right circumstance, your exit package could include continued coverage from the company’s healthcare insurance plan. Understand your options.
9. A Plan to Inform Staff
If the business is to continue and hopefully thrive, make sure to keep your employees in the loop, so they can adjust their own plans and be groomed for new roles, if applicable. Establish a written succession plan and share it with critical staff early on. Keep your staff informed about any decisions or changes you make regarding your exit from the business.
10. A Financial Review
At Global View, our retirement advisors in Greenville, SC can review how your exit will impact your financial situation and construct a complete to-do list of actions necessary to maximize your wealth. Here’s an example of what that looks like. Advance planning affords you the time necessary to get things orderly and to smoothly transition to the next stage of your life.